Dear Mr. Berko: I’m 81 years old, and my wonderful wife of 58 years is 79. We have a solid portfolio of eight utility stocks, seven preferred stocks, three master limited partnerships and six real estate investment trusts, which is worth $316,000. We also have a $14,000 certificate of deposit coming due next week. Our broker is on vacation, so we spoke with another man in his office and asked him whether it would be better to buy 100 Johnson & Johnson shares or 200 GlaxoSmithKline shares. He told us he thought it would be better for us if we bought an index annuity because it would be safer and pay us at least 6 percent and we could never lose money. Please look at this attachment and give us your opinion.
— C.S., Portland
Dear C.S.: Several days ago, I received a letter and portfolio from a reader in San Antonio who needs more income. She has an account with Charles Schwab with eight different mutual funds, several of which are heavy front-end load funds. Even Charles Schwab brokers sell high-commission mutual funds. Anyhow, she, too, visited another broker for advice, and that broker also recommended an annuity. It’s just so hard to be a customer these days and get a fair shake. I have a friend who would exclaim, “Holy Hannah, Harvey and Harry, have brokers stopped recommending common stocks today?” And the answer is that all brokers are salespeople who work on commissions, and the firms employing them (J.P. Morgan, UBS, Edward Jones, Merrill Lynch, Wells Fargo, Morgan Stanley, etc.) demand that their salespeople meet quarterly commission goals. A commission on a $10,000 mutual fund or annuity purchase ranges between 5 and 12 percent. But the commission on a $10,000 stock purchase might be 1 percent. So if you’re a broker with Edward D. Jones & Co., which product would you sell?
But it suffices to say I’ve never heard of that annuity, which ain’t worth an alga. I never heard of the issuing company, nor am I familiar with any of the mutual funds it offers — so forget about it.
Meanwhile, buy 200 shares of GlaxoSmithKline (GSK-$55.02). It yields a robust 5.7 percent and pays a $3 dividend, so 200 shares will give you $600 in dividend income. A hundred shares of Johnson & Johnson (JNJ-$100.83) would pay only $270 in dividend income and yield a scant 2.7 percent. GSK’s share performance hasn’t been worth much in the past 10 years, and revenue performance is anemic. However, a recent flurry of deals in the consumer health care sector should boost revenue growth. GSK’s strong dividend growth, averaging 8.5 percent annually in the past decade, has been aided by good net profit margins, which are expected to exceed 25 percent in the next few years. GSK could be in the midst of a turnaround because of several high-profile new drugs — Breo, Anoro and Tivicay — which are expected to be billion-dollar blockbusters. So I think GSK’s stock price could rise to the $75-$80 level in the coming five years, and the dividend could improve to $4.
